COST ACCOUNTING
FLEXIBLE BUDGETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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of inflation
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sales price/cost per unit and the fixed cost was different than planned
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actual number of units sold differs from the amount in the static budget
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Detailed explanation-1: -A flexible budget variance is any difference between the results generated by a flexible budget model and actual results. If actual revenues are inserted into a flexible budget model, this means that any variance will arise between budgeted and actual expenses, not revenues.
Detailed explanation-2: -However, some businesses use flexible budgets, which vary the expense level with the dollar amount of sales. A fixed cost flexible budget variance is the variance between the actual and budgeted amounts for a fixed cost in a flexible budget.
Detailed explanation-3: -Flexible budget variances are the differences between line items on actual financial statements and those that are on flexible budgets. Since the actual activity level is not available before the accounting period closes, flexible budgets can only be prepared at the end of the period.
Detailed explanation-4: -There is never an efficiency variance for fixed overhead because managers cannot be more or less efficient in dealing with an amount that is fixed regardless of the output level. The result is that the flexible-budget variance amount is the same as the spending variance for fixed-manufacturing overhead.